South African REIT Growthpoint Properties has agreed a deal to buy a majority stake in UK shopping centre landlord Capital & Regional.
The investment comprises a recommended partial offer to be made by Growthpoint at 33 pence in cash per Capital & Regional share to acquire 219,786,924 shares, representing approximately 30.3% and a subscription to acquire 311,451,258 new Capital & Regional shares at a price of 25 pence per subscription share to raise approximately £77.9m for Capital & Regional.
On completion of the transaction, Growthpoint will hold around 51.2% of the enlarged issued ordinary share capital of Capital & Regional.
Under the terms of the partial offer by Growthpoint, accepting Capital & Regional shareholders will receive 33 pence in cash for each Capital & Regional share, a premium of approximately 100% to the closing price of 16.5 pence on 10 September 2019 (being the last business day prior to the announcement of Growthpoint’s possible partial offer and subscription for new shares in Capital & Regional).
Of the £77.9m that will be raised, £50m will be used to reduce leverage with the balance of proceeds to be used to fund capital expenditure. The balance will be used on capital expenditure projects and reposition its assets.
Growthpoint, which said its investment philosophy is to invest into existing property platforms where it backs existing management teams and provide them with ongoing access to capital to pursue growth opportunities, said it views Capital & Regional as an attractive investment opportunity due to its “well articulated strategy to transition from a fashion led ‘wants’ based offering to a more sustainable community led ‘needs’ offering”.
It also said it was attracted by Capital & Regional’s portfolio’s “sustainable position with affordable rentals averaging £15/sq ft and significant concentration in the attractive London and South East England markets”.
Growthpoint said it would also support Capital & Regional to acquire further assets in the UK retail market taking advantage of current market conditions. However, Growthpoint said that Capital & Regional’s existing balance sheet will need to be deleveraged more in line with Growthpoint’s existing treasury policy of between 35% and 45% loan to value (currently 52%) first in order to obtain the required financial flexibility and target an improved dividend pay-out level.
The proposed transaction is expected to complete by the end of 2019.
Commenting on the proposed transaction, Hugh Scott-Barrett, chairman of Capital & Regional, said: “The Capital & Regional board is unanimously recommending the proposed transaction as we firmly believe it provides a transformational catalyst for the future growth of Capital & Regional to the benefit of all shareholders. Not only does it provide a liquidity event for shareholders at a significant premium to the company’s share price prior to this announcement, it also delivers a cash injection of approximately £77.9m that de-risks the business and provides a long-term foundation for growth. It puts Capital & Regional on the front foot by reducing leverage and allowing our strong management team to focus its full attention onto executing its strategy and implementing the roll out of its community centre asset management plan.
“Growthpoint is a well capitalised and highly experienced global real estate business with a proven track record of creating shareholder value at the companies it chooses to invest in. Furthermore, its management team shares our confidence that retail centres, such as those which Capital & Regional owns and invests in, that serve the daily ‘needs’ rather than the ‘wants’ of underlying communities, will continue to play an important role in local economies and the wider retail landscape. As a result, with Growthpoint’s support, Capital & Regional will also be well positioned to take advantage of opportunities that we expect to become apparent in an increasingly dislocated market.”
Francois Marais, chairman of Growthpoint, added: “Growthpoint views its investment in Capital & Regional as an exciting next step in the execution of its internationalisation strategy. Growthpoint’s strategic intent is to support the growth of Capital & Regional in the same way it has done following its investments in GOZ and GW. The result of Growthpoint’s investment in GOZ and GW was a significant improvement in profitability, growth in their property portfolios, both in size and quality, and a value uplift for shareholders.
“Growthpoint is fully supportive of Capital & Regional’s ‘needs based’ retail strategy and of the management of Capital & Regional. Growthpoint looks forward to a productive and profitable ongoing engagement with the management of Capital & Regional to assist Capital & Regional to achieve its stated objectives.”
QuotedData recently published research on the retail property market, including information on Capital & Regional. You can read it by clicking this link.
CAL : Capital & Regional agrees sale of majority stake to Growthpoint